How do I calculate and file estimated taxes?
You might need to make estimated tax payments if, for example, you are self-employed and have income from sources that don’t withhold income taxes, like:
- Self-employment income
- Partnership income
- Certain stock sales
Use Form 1040-ES to file your quarterly estimated taxes. This form also includes a worksheet for you to calculate your estimated tax payments for the year. The worksheet requires you to estimate your adjusted gross income (AGI) and deductions for the year.
Estimate your taxable income as best you can. If you underestimate your taxes, you could owe a penalty at the end of the year. There is a safe harbor from the penalty, if you pay at least as much tax as you owed last year. Your estimated tax payments must cover both of these:
- Your income tax
- Your self-employment tax, if you’re self-employed
To find the form and worksheet, go to www.irs.gov.
If you have an employer and one of the forms of income listed above, you have an alternative to making estimated tax payments. You can submit a new W-4 to your employer to have additional tax withheld from your paychecks. This eliminates the need to make the quarterly estimated tax payments.